EXPLAINED: Should I think about a private pension in Austria?
The pension system in Austria rests on three pillars – state pensions, occupational plans that see employers top up employee pensions, and private retirement provision. But is the third pillar worth it?
Only a quarter of people in Austria trust the country’s pension system, according to one recent poll. At the same time, only about 25 percent of people in Austria have access to an occupational pension, which tops up the retirement payments they can expect to get from the state. With that in mind, some people may choose to opt for a private pension to put a little more in their nest egg.
But is it worth it?
READ ALSO: Why only a quarter of Austrians trust the pension system
How it works
Private pensions might be attractive for people who want a little more to retire on, perhaps because they don’t pay into a state pension – although anyone formally employed in Austria will pay into this – or they don’t have employer top-ups through occupational plans. They may also simply decide that these put together simply aren’t enough to provide the funds they’ll need for their golden years.
To take one out, you simply look for Private Pensionsversicherung, Private Altersvorsorge, or Private Rentenversicherung from an insurer like Allianz or Cigna. You can also sometimes get a plan from your bank.
The services you get from any particular plan could be highly individualised, however. Depending on what you sign up for, you may end up paying in fixed and agreed contribution amounts over time until you hit retirement age. Some of these contracts may have long terms that are hard to cancel early, so make sure you read the fine print. If you cancel early, you may also not be guaranteed to get all your money back.
Contribution amounts can be fixed over time and you may see different price offers depending on your age. However, premium contributions of around €100 a month are fairly standard.
Like many other European countries, Austria has a compulsory pension system. This can be supplemented though with occupational and private pensions - if state payments aren't enough. (Photo by Centre for Better Ageing / Pexels)
Depending on your plan, you may opt – upon retirement age – to draw on guaranteed lifelong pension payments where only a small part of the payments are taxed. Or you may opt to have all of – or part of your capital contributions refunded to you once you reach retirement age. Depending on the plan, these may come with some gains if your bank or pension fund has made good investment decisions – but these aren’t guaranteed.
What’s important to mention as well is that private pension saving contracts agreed after 2016 can no longer be deducted on employee tax returns. They’re also subject to an insurance tax of four percent. Under Austrian law though, any capital gain you have, however, won’t be taxed if it comes through a private pension fund.
READ ALSO: EXPLAINED: How does the Austrian pension system work?
Is it worth it?
With fewer tax advantages than they used to have, many consumer groups are sounding warnings about private pension plans in Austria – cautioning that while they may have been worth it at some point, they perhaps no longer are.
Firstly, the Styria Chamber of Labour cautions potential buyers to check and see if the plan they’re looking at has a guaranteed interest rate – as not all do. With interest rates and inflation rising, this may be a good way to check if putting your money in a private pension is in fact worth it.
The chamber also cautions that those taking out money in monthly payments over a long period of time – rather than as lump sums of capital – may not end up even getting back all the contributions they put in, unless they end up living well into their eighties. This is especially true if the plan doesn’t offer a guaranteed interest rate.
Ultimately, private pension plans occupy a less prominent role than they used to in Austrian retirement planning. However, some plans may make sense for those who have a higher risk tolerance, in order to take advantage of no taxes on their capital gains when they reach retirement age.
In other cases though, it may offer more flexibility for a potential private pension customer to manage their own investments outside a private pension plan.
READ ALSO: EXPLAINED: How do employer top-ups to my pension work in Austria?
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Only a quarter of people in Austria trust the country’s pension system, according to one recent poll. At the same time, only about 25 percent of people in Austria have access to an occupational pension, which tops up the retirement payments they can expect to get from the state. With that in mind, some people may choose to opt for a private pension to put a little more in their nest egg.
But is it worth it?
READ ALSO: Why only a quarter of Austrians trust the pension system
How it works
Private pensions might be attractive for people who want a little more to retire on, perhaps because they don’t pay into a state pension – although anyone formally employed in Austria will pay into this – or they don’t have employer top-ups through occupational plans. They may also simply decide that these put together simply aren’t enough to provide the funds they’ll need for their golden years.
To take one out, you simply look for Private Pensionsversicherung, Private Altersvorsorge, or Private Rentenversicherung from an insurer like Allianz or Cigna. You can also sometimes get a plan from your bank.
The services you get from any particular plan could be highly individualised, however. Depending on what you sign up for, you may end up paying in fixed and agreed contribution amounts over time until you hit retirement age. Some of these contracts may have long terms that are hard to cancel early, so make sure you read the fine print. If you cancel early, you may also not be guaranteed to get all your money back.
Contribution amounts can be fixed over time and you may see different price offers depending on your age. However, premium contributions of around €100 a month are fairly standard.
Depending on your plan, you may opt – upon retirement age – to draw on guaranteed lifelong pension payments where only a small part of the payments are taxed. Or you may opt to have all of – or part of your capital contributions refunded to you once you reach retirement age. Depending on the plan, these may come with some gains if your bank or pension fund has made good investment decisions – but these aren’t guaranteed.
What’s important to mention as well is that private pension saving contracts agreed after 2016 can no longer be deducted on employee tax returns. They’re also subject to an insurance tax of four percent. Under Austrian law though, any capital gain you have, however, won’t be taxed if it comes through a private pension fund.
READ ALSO: EXPLAINED: How does the Austrian pension system work?
Is it worth it?
With fewer tax advantages than they used to have, many consumer groups are sounding warnings about private pension plans in Austria – cautioning that while they may have been worth it at some point, they perhaps no longer are.
Firstly, the Styria Chamber of Labour cautions potential buyers to check and see if the plan they’re looking at has a guaranteed interest rate – as not all do. With interest rates and inflation rising, this may be a good way to check if putting your money in a private pension is in fact worth it.
The chamber also cautions that those taking out money in monthly payments over a long period of time – rather than as lump sums of capital – may not end up even getting back all the contributions they put in, unless they end up living well into their eighties. This is especially true if the plan doesn’t offer a guaranteed interest rate.
Ultimately, private pension plans occupy a less prominent role than they used to in Austrian retirement planning. However, some plans may make sense for those who have a higher risk tolerance, in order to take advantage of no taxes on their capital gains when they reach retirement age.
In other cases though, it may offer more flexibility for a potential private pension customer to manage their own investments outside a private pension plan.
READ ALSO: EXPLAINED: How do employer top-ups to my pension work in Austria?
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